Logistics
The cost of logistics in India represents some 13% of GDP. For China, the figure is around 21% of GDP — a big improvement on 1991, when it was around a quarter. Back in 1982, logistics represented 14.5% of America’s GDP, but now the share is down to just over 8%. Between then and now inventory costs in America have fallen by 60%. Europe is lagging behind America, with logistics costs of 11% of GDP or more.
Supply-chain efficiencies can be improved in various ways. One of the most dramatic was discovered 50 years ago when Malcom McLean reinforced the decks of the Ideal-X, an oil tanker left over from the second world war, and loaded it with 58 large metal boxes containing goods that would normally have travelled as loose cargo. It was this event, says Marc Levinson in his recent book The Box, which marked the birth of the shipping container.
The Ideal-X sailed from Newark, New Jersey, to Houston, where after a five-day trip the boxes were unloaded directly onto trucks and hauled to their final destinations. In 1956 the back-breaking business of loading cargo onto a ship cost $5.83 per ton, says Mr Levinson. McLean calculated that loading the Ideal-X cost less than 16 cents a ton. Containerisation dramatically reduced the cost of shipping products from one place to another.
Today most goods and raw materials spend some time in a container as they move around. The container-shipping industry is booming, especially with exports from Asia. Giant container ports such as Hong Kong, Singapore and Los Angeles have flourished thanks to rapid-loading equipment. And container ships are getting bigger. Some now carry around 9,000 containers, and there are plans for giant vessels with double that number, which would require a line of trucks more than 50 miles long to haul away all the containers they could carry.
FedEx’s purchase in 2003 of Kinkos, whose main business was a chain of photocopying centres, has given the company some 1,300 high-street locations, mostly in America. Fedex is now using these to offer additional services. Despite the internet and e-mail, the demand for paper-based communications shows no sign of diminishing. But instead of shipping printed documents by air, FedEx now provides its clients with a remote-printing service. So instead of sending, say, lots of bulky brochures for a sales conference by air, a client could send them electronically to a Kinkos near the venue and pick them up in printed form from there.
Historically, transport technology has always made a physical impact on centres of commerce. In the days when cargo was loaded onto ships mainly by hand, factories would often cluster nearby because transport costs were high and delivery slow. With the arrival of the shipping container, factories were able to move to cheaper locations and away from crowded city ports such as New York City and the London docks. Container terminals did not have to be so close to large population centres, provided they had plenty of space, railways, good roads and workers prepared to handle containers, which many stevedores in older ports were not.
Something similar is now happening around logistics centres, especially at airports. Companies are moving some or all of their operations to be near such centres because this allows them to process orders late into the day and put their goods on the last flight out, for delivery the following morning. As a result, some surprising businesses are setting up shop near logistics hubs. For instance, even though Louisville is a long way from the sea it is now home to the world’s biggest distributor of fresh lobsters.
“Cargo cults,” The Economist